Advisors: Help Clients Spot an Investment Scam

In last week’s blog post , we talked about the prevalence of investment scams in Canada and which Canadians are most at risk. As an advisor, you can’t be responsible for every investment decision – good or bad – your clients make.

But you can help clients by making sure they know the following warning signs of an investment scam. You can also advise them on how to report a scam if they become a victim.

What to watch for

1. Intense sales pressure

Somebody who’s selling a legitimate investment won’t put pressure on your client to “Act fast!” or “Buy now!” They’ll encourage your client to go home and do their own research on the investment to make sure it’s right for them.

High-pressure sales tactics are almost always a sign of a bad deal. Likewise, if your client does try to research the investment on their own and can’t find any information, it’s likely a scam.

Remind clients that a real investment advisor selling a legitimate investment product will be registered by a provincial securities commission. Clients can search for registered individuals and firms on the Canadian Securities Administrators website.

2. Offering high returns for low (or no) risk

It’s a cliché, but if it sounds too good to be true, it probably is. Real investments come with risk. And the higher the potential return, the higher the level of risk. Anybody promising double-digit returns for virtually no risk is lying.

3. The promise of “insider” information

Another tactic often used by scam artists is the promise of a big deal about to be made or a big event about to happen that is sure to make your client’s investment soar. And nobody else knows about this big deal/event, so your client is really lucky to be getting this information.

Remind clients that sharing insider information is illegal, and it’s not something a registered investment advisor would do. Most likely, the “insider information” is completely fictional, but even if it’s not, acting on it will get your client into serious legal trouble.

Most likely, the “insider information” is completely fictional, but even if it’s not, acting on it will get your client into serious legal trouble.

Reporting a scam

Finally, if a client does fall for a scam, advise them to report it to the CAFC, which is an RCMP service. Unfortunately, most victims of fraud don’t get their money back, but reporting the scam is your client’s best chance. It’s also the only way the scam artist will get caught.

The CAFC is also a great resource for information on current scams that clients should watch for.